Worry About Customers, Not Financing or Exits, Says Angel Investor Joe Caruso

9/7/10Follow @gthuang

It’s been three months since Angel Boot Camp in Cambridge, MA—a seminal event in the local ecosystem of angel investors and entrepreneurs. I’m curious to follow up on what progress has been made since that meeting, so I’ve been getting to know some of the local angel investors in technology who were there, and/or who regularly attend startup events around town.

One of them is Joe Caruso, who has invested in more than 100 startups, including notables like Bitpipe, Boston Micromachines, Carbonite, Constant Contact, Dexrex, HubSpot, i2Chem, Localytics, Marginize, Nantero, Nimbit, SCVNGR, SiCortex, Skyhook Wireless, Terrafugia, and Vela Systems. Caruso has been an advisor and advocate for entrepreneurs for the past 20 years, after working at companies such as Teradyne and Autex, and serving as CEO of Cyborg.

In his spare time, Caruso is coordinating a weeklong series of events next month called BREW (Boston Region Entrepreneurship Week). The series, which will run from October 13-21, includes a joint open house from Mass Challenge and Mass Innovation Nights; a Mass Technology Leadership Council event on the state’s innovation future; and VC office hours at Cambridge Innovation Center.

The main goal of BREW is to put a spotlight on the greater Boston area as an epicenter for startups, and the hardy souls who conceive, launch, and build new companies, Caruso says. In terms of measurable outcomes, one hypothetical goal he has mentioned would be having 10 fewer MIT students leave Boston for Silicon Valley this year—that might be a start, anyway. (As for BREW, anyone can host an event and list it here.)

I recently had a chat with Caruso about the street-level trends he’s seeing among early-stage technology companies. In his role as an advisor to startup CEOs, here are two quick nuggets of advice (neither of them very surprising, but good for entrepreneurs to keep in mind):

On fundraising and getting customers: “I don’t know if it’s just been a drum I’ve been beating, or financial realities, but more and more entrepreneurs are bootstrapping it and doing it with no dollars,” he says. Not surprisingly, Caruso says he spends a lot of time talking to early-stage entrepreneurs about the effort they put into raising money. “If they put the same effort into getting a customer, they’d be better off,” he says. “Why not get $50K worth of orders, and then the $100K will come chasing after you. When people start a company, I would rather they think, ‘Now I’d rather go get a customer’” than go raise money.

(All of this fits with what I’m hearing on both coasts about the relentless need to focus on customers—and to bootstrap if you can, at least in the early days.)

On startup exits: “I still see a little too much emphasis on the exit strategy. I’d like to see more entrepreneurs have a big vision they’re off pursuing, rather than, ‘How do I sell this in three years?’” Caruso says. Still, he notes, entrepreneurs have become more grounded in the past five to 10 years. “Compared to ’99, we look phenomenal. I think we’ve progressed tremendously,” he says.

But from an investor perspective, he says: “Some entrepreneurs have been slow to adjust their thinking on valuations. A company that 10 years ago would sell for $500 million, today would only sell for $100 million—there has to be an adjustment to what investors will pay.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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